UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-9533
---------------------
Colonial Insured Municipal Fund
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
- ------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
-------------------
Date of fiscal year end: 11/30/2004
------------------
Date of reporting period: 05/31/2004
-----------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
COLONIAL INSURED MUNICIPAL FUND
[photo of bridge]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
SEMIANNUAL REPORT
MAY 31, 2004
PRESIDENT'S MESSAGE
July 21, 2004
Dear Shareholder:
We are pleased to let you know that FleetBoston Financial Corporation and Bank
of America Corporation have merged, effective April 1, 2004. As a result of the
merger, Columbia Management Group and your Colonial Insured Municipal Fund
became part of the Bank of America family of companies. Looking ahead, we
believe this merger will be a real benefit to our shareholders. Preserving and
leveraging our strengths, the combined organization intends to deliver
additional research and management capabilities, as well as new products. There
are no immediate changes planned for fund names, product lines, or customer
service contacts.
As you might know, on March 15, 2004, FleetBoston Financial announced an
agreement in principle with the staff of the Securities and Exchange Commission
("SEC") and the New York Attorney General ("NYAG") to settle charges involving
market timing in Columbia Management mutual funds. (You may also know that Bank
of America came to a similar settlement in principle at the same time.) The
agreement requires the final approval of the SEC and the NYAG. This settlement
in principle reflects our strong wish to put this regrettable situation behind
us. Columbia Management has taken and will continue to take steps to strengthen
policies, procedures and oversight to curb frequent trading of Columbia open-end
fund shares.
Both your fund's trustees and Columbia Management are committed to serving the
interests of our shareholders, and we will continue to work hard to help you
achieve your financial goals.
As always, thank you for choosing Colonial Insured Municipal Fund, and for
giving us the opportunity to help you build a strong financial future.
Sincerely,
/s/ Thomas C. Theobald /s/ J. Kevin Connaughton
Thomas C. Theobald J. Kevin Connaughton
Chairman, Board of Trustees President
J. Kevin Connaughton was named president of Colonial Insured Municipal Fund on
February 27, 2004.
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
PORTFOLIO MANAGER'S REPORT
[SIDEBAR DATA]:
PRICE PER SHARE AS OF 05/31/04 ($)
Net asset value 14.24
- ------------------------------
Market price 14.18
- ------------------------------
SIX-MONTH (CUMULATIVE) TOTAL RETURN AS OF 05/31/04 (%)
Net asset value -0.75
- ------------------------------
Market price -4.00
- ------------------------------
Lipper Insured Municipal
Debt Funds (Leveraged)
Category average -1.31
- ------------------------------
All results shown assume reinvestment of distributions.
DISTRIBUTIONS DECLARED
PER COMMON SHARE
12/01/03-05/31/04 ($)
0.52
- ------------------------------
A portion of the fund's income may be subject to the alternative minimum tax.
The fund may at times purchase tax-exempt securities at a discount from their
original issue price. Some or all of this discount may be included in the fund's
ordinary income, and any market discount is taxable when distributed.
TOP 5 SECTORS AS OF 05/31/04 (%)
Local general obligations 12.5
- ------------------------------
Refunded/escrowed 10.3
- ------------------------------
Airports 9.0
- ------------------------------
Hospitals 8.6
- ------------------------------
Investor owned 5.3
- ------------------------------
QUALITY BREAKDOWN
AS OF 05/31/04 (%)
AAA 79.1
- ------------------------------
AA 4.9
- ------------------------------
A 5.0
- ------------------------------
BBB 2.7
- ------------------------------
BB 1.2
- ------------------------------
Non-rated 3.9
- ------------------------------
Cash equivalents 3.2
- ------------------------------
Sector breakdown is calculated as a percentage of net assets (including auction
preferred shares). Quality breakdown is calculated as a percentage of total
investments. Ratings shown in the quality breakdown represent the highest rating
assigned to a particular bond by one of the following nationally-recognized
rating agencies: Standard & Poor's Corporation, Moody's Investors Service, Inc.
or Fitch Rating Ltd.
Because the fund is actively managed, there is no guarantee that the fund will
continue to invest in these sectors or maintain this quality breakdown in the
future.
For the six-month period ended May 31, 2004, Colonial Insured Municipal Fund
generated a total return of negative 0.75%, based on investment at net asset
value. In an environment that was generally weak for bonds, the fund held up
better than its peer group, the Lipper Insured Municipal Debt Funds (Leveraged)
Category, which averaged a negative 1.31% return over the same period.1
Fund performance was helped by the pre-refunding of two holdings. An issuer
pre-refunds bonds by issuing new bonds and investing those proceeds in US
Treasury securities. The Treasury securities are pledged to pay off the
pre-refunded bonds, therefore they usually increase in value and benefit the
fund. The fund also benefited from securities that have short effective
maturities. These bonds have premium coupons and are priced to a call date
substantially shorter than their stated maturity. Many of the bonds were priced
to a call date in 5 to 10 years and were purchased when interest rates were
higher, so they also provided good income for the fund. Generally these bonds
are less sensitive to changes in interest rates. They performed well for the
fund when interest rates rose late in the period, but the fund's investments in
non-callable bonds, particularly zero-coupon bonds, detracted from returns.
For the six-month period ended May 31, 2004, the fund had a return of negative
4.00%, based on its market price, as the discount to net asset value increased.
Fears that short-term interest rates would rise and hurt the fund's high
dividend yield put pressure on the stock's price. In addition, during the
period, the fund was trading at a reasonably large premium which may have
prompted holders to sell and capture some of that premium.
FUND AIDED BY HIGH-YIELD BONDS AND LEVERAGED POSITION
The fund was also helped by its holdings of high-yield bonds, which performed
better as a category than higher quality bonds as interest rates rose and prices
declined. High-yield bonds also provided the fund with higher income, which
further contributed to the fund's total return. We also maintained the fund's
competitive yield by not buying many bonds when interest rates were
substantially lower.
Leveraged positions provided the fund with additional income during the period.
We have, in effect, "borrowed against" the fund's investment positions by
issuing preferred shares, which pay out a short-term variable rate. When those
preferred shares were issued in 1999, we invested the
1 Lipper, Inc., a widely respected data provider in the industry, calculates
an average return for mutual funds with similar investment objectives as
the fund.
1
PORTFOLIO MANAGER'S REPORT (CONTINUED)
proceeds in bonds with longer maturities. During this reporting period, the
payout rate of preferred shares was lower than the yield the fund earned from
those longer-maturity bonds. However, the use of leverage increases the
likelihood of share price volatility and market risk.
SOLD AIRLINE-RELATED SECURITIES
During the period we reduced our airline holdings. We sold Kenton County
Kentucky, Delta Airlines bonds anticipating that business operation challenges
could hurt the bond's value. In addition, we sold Dallas-Fort Worth, Texas
American Airlines bonds. After recent court rulings, we believed that the sale
price for these bonds may have reflected a higher value than the underlying
assets backing them. The proceeds of these sales were used to buy bonds which
generated income for the fund.
FOCUS ON INFLATION
We think the pace of inflation will be an important factor in determining how
much the Federal Reserve Board (the Fed) raises short-term interest rates.
Yields in the fixed-income markets rose at the end of the period in anticipation
that the Fed would be aggressive in making a series of short-term rate increases
by the end of this year. This market move may have been exaggerated. We believe
that inflationary pressures may be less strong in the coming months and that the
Fed may not have to raise rates as aggressively to achieve price stability. We
expect to continue to focus on high-grade bonds with good call protection
maturing in the 20-year range.
/s/ Kimberly A. Campbell
Kimberly Campbell has been the portfolio manager of Colonial Insured Municipal
Fund since October 2003. During the period March 2004 to April 2004, Ms.
Campbell was on a leave of absence. Ms. Campbell has worked for Columbia
Management Advisors, Inc. or its predecessors since 1995.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE INVESTMENT RESULTS. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE DATA QUOTED.
Tax-exempt investing offers current tax-free income, but it also involves
certain risks. The value of the fund shares will be affected by interest rate
changes and the creditworthiness of issues held in the fund. Investing in high
yield securities offers the potential for high current income and attractive
total return, but involves certain risks. Lower-rated bond risks include default
of the issuer and rising interest rates. Interest income from certain tax-exempt
bonds may be subject to the federal alternative minimum tax for individuals and
corporations.
2
INVESTMENT PORTFOLIO
May 31, 2004 (Unaudited)
MUNICIPAL BONDS - 98.4% PAR ($) VALUE ($)
- -----------------------------------------------------------
EDUCATION - 3.6%
EDUCATION - 1.1%
DC Catholic University of America,
Series 1999,
5.625% 10/01/29 1,000,000 1,047,820
------------
Education Total 1,047,820
------------
STUDENT LOAN - 2.5%
MA Educational Loan Authority,
Issue G, Series 2000 A, AMT,
5.950% 12/01/15 395,000 414,888
MT Higher Education Student
Assistance Corp., Series 1999 B, AMT,
6.400% 12/01/32 2,000,000 2,065,280
------------
Student Loan Total 2,480,168
------------
EDUCATION TOTAL 3,527,988
------------
- -----------------------------------------------------------
HEALTH CARE - 11.9%
CONGREGATE CARE RETIREMENT - 1.1%
NY Dormitory Authority, Miriam Osborn
Memorial Home, Series 2000 B,
6.875% 07/01/19 500,000 554,690
NY Suffolk County Industrial
Development Agency, Jeffersons
Ferry, Series 1999 A,
7.200% 11/01/19 550,000 571,923
------------
Congregate Care Retirement Total 1,126,613
------------
HEALTH SERVICES - 2.2%
WI Health & Educational Facilities
Authority, Marshfield Clinic,
Series 1999,
6.250% 02/15/29 2,000,000 2,161,380
------------
Health Services Total 2,161,380
------------
HOSPITALS - 8.6%
CO Health Facilities Authority,
Parkview Medical Center, Inc.,
Series 2001,
6.600% 09/01/25 400,000 413,860
IA Finance Authority, Mercy Medical
Center, Series 1999,
5.750% 08/15/29 1,000,000 1,044,980
IL Health Facilities Authority,
Swedish American Hospital,
Series 2000,
6.875% 11/15/30 500,000 543,865
ME Health & Higher Educational
Facilities Authority, Series 1999 B,
6.000% 07/01/29 1,500,000 1,614,165
MI Flint Hospital Building Authority,
Hurley Medical Center, Series 1998 B,
5.375% 07/01/28 200,000 191,026
PAR ($) VALUE ($)
- -----------------------------------------------------------
NV Henderson, Catholic Healthcare
West, Series 1999 A,
6.750% 07/01/20 500,000 534,205
OH Jackson, Consolidated Health
Systems, Series 1999,
6.250% 10/01/29 1,500,000 1,626,735
OK Industrial Authority,
Series 1999 A,
5.750% 08/15/29 2,000,000 2,106,980
WA Health Care Facilities Authority,
Kadlec Medical Center,
Series 2001,
5.875% 12/01/21 300,000 318,462
------------
Hospitals Total 8,394,278
------------
HEALTH CARE TOTAL 11,682,271
------------
- -----------------------------------------------------------
HOUSING - 4.6%
ASSISTED LIVING/SENIOR - 0.7%
DE Kent County, Heritage at Dover,
Series 1999, AMT,
7.625% 01/01/30 245,000 202,309
NC Medical Care Commission,
DePaul Community Facilities
Project, Series 1999,
7.625% 11/01/29 490,000 499,119
------------
Assisted Living/Senior Total 701,428
------------
MULTI-FAMILY - 0.5%
FL Broward County Housing Finance
Authority, Chaves Lake Apartment
Project, Series 2000 A, AMT,
7.500% 07/01/40 250,000 245,075
FL Clay County Housing Finance
Authority, Madison Commons
Apartments, Series 2000 A, AMT,
7.450% 07/01/40 250,000 246,585
------------
Multi-Family Total 491,660
------------
SINGLE FAMILY - 3.4%
AK Housing Finance Corp.,
Series 1999 A-1,
6.150% 06/01/39 1,575,000 1,641,276
CA Rural Home Mortgage Finance
Authority, Series 1998 A, AMT,
6.350% 12/01/29 255,000 260,799
CO Housing Finance Authority:
Series 1998 D-2, AMT,
6.350% 11/01/29 705,000 715,215
Series 2000 B-2, AMT,
7.250% 10/01/31 130,000 131,842
OK Housing Finance Agency,
Series 2000 C-2, AMT,
7.550% 09/01/28 525,000 555,418
------------
Single Family Total 3,304,550
------------
HOUSING TOTAL 4,497,638
------------
See notes to investment portfolio.
3
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
- ----------------------------------------------------------
INDUSTRIAL - 0.5%
FOREST PRODUCTS - 0.5%
MN International Falls, Boise
Cascade Corp., Series 1999, AMT,
6.850% 12/01/29 500,000 497,550
------------
Forest Products Total 497,550
------------
INDUSTRIAL TOTAL 497,550
------------
- -----------------------------------------------------------
OTHER - 13.7%
OTHER - 2.3%
AL Incentives Financing Authority,
Series 1999 A,
6.000% 10/01/29 2,000,000 2,193,820
------------
Other Total 2,193,820
------------
POOL/BOND BANK - 1.0%
UT Water Finance Agency,
Series 2002 B,
5.125% 07/01/23 1,000,000 1,013,640
------------
Pool/Bond Bank Total 1,013,640
------------
TOBACCO - 0.1%
NJ Tobacco Settlement Financing
Corp., Series 2003,
6.750% 06/01/39 150,000 132,806
------------
Tobacco Total 132,806
------------
REFUNDED/ESCROWED (A) - 10.3%
AL Jefferson County Sewer Authority,
Series 1999 A,
5.750% 02/01/38 2,000,000 2,243,720
NY Dormitory Authority,
Series 1999 C,
5.500% 07/01/29 2,055,000 2,294,921
NY Metropolitan Transportation
Authority, Series 1998 A,
5.250% 07/01/28 (b) 1,500,000 1,655,115
PA Pittsburgh, Series 1999 A,
5.750% 09/01/21 1,250,000 1,391,938
TX Houston,
Series 1999A,
4.750% 12/01/24 1,750,000 1,877,120
WV Hospital Finance Authority,
Charleston Area Medical Center,
Series 2000,
6.750% 09/01/30 500,000 596,355
------------
Refunded/Escrowed Total 10,059,169
------------
OTHER TOTAL 13,399,435
------------
- -----------------------------------------------------------
OTHER REVENUE - 0.1%
RECREATION - 0.1%
CT Gaming Authority, Mohegan
Tribe Indians, Series 2001,
6.250% 01/01/31 (c) 100,000 103,532
------------
Recreation Total 103,532
------------
OTHER REVENUE TOTAL 103,532
------------
PAR ($) VALUE ($)
- -----------------------------------------------------------
RESOURCE RECOVERY - 0.8%
DISPOSAL - 0.8%
CA Solid Waste Authority, Salinas
Valley, Series 2002, AMT,
5.125% 08/01/22 750,000 754,178
------------
Disposal Total 754,178
------------
RESOURCE RECOVERY TOTAL 754,178
------------
- -----------------------------------------------------------
TAX-BACKED - 27.2%
LOCAL APPROPRIATED - 2.7%
CA Sacramento City Financing
Authority, City Hall &
Redevelopment,
Series 2002 A,
5.000% 12/01/32 1,000,000 976,240
OK Grady County Correctional
Facility, Series 1999,
6.000% 11/01/29 500,000 536,315
TX Houston, Series 2000,
6.400% 06/01/27 1,000,000 1,111,630
------------
Local Appropriated Total 2,624,185
------------
LOCAL GENERAL OBLIGATIONS - 12.5%
CA Centinela Valley Unified School
District, Series 2002 A,
5.250% 02/01/22 730,000 780,516
CA Empire Unified School District,
No. 1987-1-A, Series 2002,
(d) 10/01/18 1,665,000 799,616
CA Morgan Hill Unified School
District, Series 2002,
(d) 08/01/21 1,000,000 401,130
CA Union Elementary School
District, Series 1999 A,
(d) 09/01/16 1,400,000 769,720
CA Vallejo Unified School
District, Series 2002 A,
5.900% 02/01/21 500,000 571,165
CA West Covina Unified School
District, Series 2002 A,
5.800% 02/01/21 320,000 363,789
CT East Hartford, Series 2003,
5.000% 05/01/11 1,000,000 1,093,050
IL Coles & Cumberland Counties
Unified School District,
Series 2000,
(d) 12/01/14 2,080,000 1,275,269
MI Jonesville Community Schools,
Series 1999,
5.750% 05/01/20 2,000,000 2,156,280
PA Philadelphia, Series 1999 C,
5.750% 03/01/29 1,750,000 1,867,775
RI North Kingstown, Series 1999,
5.875% 10/01/25 2,000,000 2,172,660
------------
Local General Obligations Total 12,250,970
------------
See notes to investment portfolio.
4
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
- -----------------------------------------------------------
TAX-BACKED (CONTINUED)
SPECIAL NON-PROPERTY TAX - 5.1%
IL Metropolitan Pier & Exposition
Authority, McCormick Place
Expansion Project, Series 1999,
5.500% 12/15/24 (b) 2,000,000 2,088,040
MI Trunk Line Department of
Treasury, Series 2004,
5.250% 11/01/21 1,000,000 1,074,800
PR Commonwealth of Puerto Rico
Highway & Transportation
Authority, Series 2002 E:
5.500% 07/01/21 250,000 277,678
5.500% 07/01/23 1,000,000 1,104,060
VI Virgin Islands Public Finance
Authority, Series 1999,
6.500% 10/01/24 350,000 389,837
------------
Special Non-Property Tax Total 4,934,415
------------
SPECIAL PROPERTY TAX - 2.2%
CA Huntington Park Public Financing
Authority Revenue, Series 2004,
5.250% 09/01/19 (e) 1,190,000 1,260,626
CA Pittsburg Redevelopment Agency,
Los Medanos Project, Series 1999,
(d) 08/01/26 2,500,000 709,075
FL Lexington Oaks Community
Development District,
Series 2000 A,
7.200% 05/01/30 185,000 193,279
------------
Special Property Tax Total 2,162,980
------------
STATE APPROPRIATED - 2.2%
IL Department of Central Management
Services, Series 1999,
5.850% 07/01/19 2,000,000 2,187,860
------------
State Appropriated Total 2,187,860
------------
STATE GENERAL OBLIGATIONS - 2.5%
CA, Series 2002,
6.000% 04/01/16 500,000 577,190
MA, Series 2004 A,
5.250% 08/01/20 1,000,000 1,068,790
PR Commonwealth of Puerto Rico,
Series 2004 A,
5.000% 07/01/31 750,000 804,600
------------
State General Obligations Total 2,450,580
------------
TAX-BACKED TOTAL 26,610,990
------------
- -----------------------------------------------------------
TRANSPORTATION - 21.1%
AIR TRANSPORTATION - 4.4%
FL Miami-Dade County Industrial
Development Authority, Airis
Miami II, LLC, Series 1999 A, AMT,
6.000% 10/15/25 1,000,000 1,072,830
PAR ($) VALUE ($)
- -----------------------------------------------------------
IL Chicago O'Hare International Airport,
United Airlines, Inc., Series 2000 A, AMT,
6.750% 11/01/11 (f) 500,000 166,425
MA Port Authority, US Airways, Inc.,
Series 1999, AMT,
6.000% 09/01/21 2,500,000 2,594,900
MN Minneapolis & St. Paul Metropolitan
Airport Commission, Northwest
Airlines Corp., Series 2001 A, AMT,
7.000% 04/01/25 250,000 220,742
NC Charlotte/Douglas International
Airport, US Airways, Inc.:
Series 1998, AMT,
5.600% 07/01/27 200,000 107,000
Series 2000, AMT,
7.750% 02/01/28 250,000 178,682
------------
Air Transportation Total 4,340,579
------------
AIRPORTS - 9.0%
DC Metropolitan Washington Airports
Authority, Series 2003 A, AMT,
5.500% 10/01/19 1,000,000 1,048,910
NY Niagara Frontier Transportation
Authority, Series 1999 A, AMT,
5.625% 04/01/29 2,000,000 2,063,780
TN Memphis-Shelby County, Airport
Authority, Series 1999 D, AMT,
6.000% 03/01/24 5,280,000 5,661,427
------------
Airports Total 8,774,117
------------
PORTS - 4.4%
AL Docks Department, Series 1998,
5.500% 10/01/22 1,000,000 1,049,660
WA Seattle Special Port Authority,
Terminal 18, Series 1999 A,
6.000% 09/01/29 3,000,000 3,272,520
------------
Ports Total 4,322,180
------------
TOLL FACILITIES - 0.5%
CO Northwest Parkway Public Highway
Authority, Series 2001 D,
7.125% 06/15/41 200,000 207,242
NY Triborough Bridge & Tunnel
Authority, Series 2002,
5.500% 11/15/20 200,000 222,338
------------
Toll Facilities Total 429,580
------------
TRANSPORTATION - 2.8%
IN Transportation Financing Authority
Highway Revenue, Series 2004 A,
5.250% 06/01/20 (e) 1,000,000 1,046,760
NV Department of Business & Industry,
Las Vegas Monorail Project,
Series 2000,
7.375% 01/01/40 250,000 244,578
See notes to investment portfolio.
5
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
- ----------------------------------------------------------
TRANSPORTATION (CONTINUED)
TRANSPORTATION (CONTINUED)
NY Metropolitan Transportation
Authority, Series 2002 A,
5.000% 11/15/30 1,500,000 1,480,455
------------
Transportation Total 2,771,793
------------
TRANSPORTATION TOTAL 20,638,249
------------
- -----------------------------------------------------------
UTILITY - 14.9%
INDEPENDENT POWER PRODUCERS - 1.3%
MI Midland County Economic
Development Corp., Series 2000, AMT,
6.875% 07/23/09 500,000 515,875
PR Commonwealth of Puerto Rico
Industrial, Educational, Medical
& Environmental Cogeneration
Facilities, AES Project, AMT,
Series 2000,
6.625% 06/01/26 295,000 305,676
VA Pittsylvania County Industrial
Development Authority,
Multi-trade of Pittsylvania, L.P.,
Series 1994 A, AMT,
7.500% 01/01/14 500,000 460,025
------------
Independent Power Producers Total 1,281,576
------------
INVESTOR OWNED - 5.3%
CA Pollution Control Finance
Authority, San Diego Gas
& Electric Co.,
Series 1991 A, AMT,
6.800% 06/01/15 500,000 559,330
HI Department of Budget & Finance,
Hawaiian Electric Co.,
Series 1999 C, AMT,
6.200% 11/01/29 2,000,000 2,190,360
TX Brazos River Authority:
Houston Industries, Inc.,
Series 1998 A,
5.125% 05/01/19 2,100,000 2,155,440
TXU Electric Co.,
Series 2003 C, AMT,
6.750% 10/01/38 300,000 314,787
------------
Investor Owned Total 5,219,917
------------
JOINT POWER AUTHORITY - 0.6%
NC Eastern Municipal Power Agency,
Series 1999 D,
6.700% 01/01/19 500,000 550,585
------------
Joint Power Authority Total 550,585
------------
PAR ($) VALUE ($)
- -----------------------------------------------------------
MUNICIPAL ELECTRIC - 2.7%
CA Department of Water &
Power Supply, Series 2002 A,
5.500% 05/01/14 1,000,000 1,101,130
TX Lower Colorado River Authority,
Series 1999 A,
5.500% 05/15/21 1,500,000 1,588,605
------------
Municipal Electric Total 2,689,735
------------
WATER & SEWER - 5.0%
AZ Water System Revenue, Phoenix
Civic Improvement Corp.,
Series 2001,
5.500% 07/01/21 1,000,000 1,105,680
SC Lugoff-Elgin Water Authority,
Series 1999,
6.050% 11/01/31 1,500,000 1,661,610
TX Houston,
Utility System Revenue,
Series 2004 A,
5.250% 05/15/20 (e) 2,000,000 2,093,160
------------
Water & Sewer Total 4,860,450
------------
UTILITY TOTAL 14,602,263
------------
TOTAL MUNICIPAL BONDS
(cost of $89,676,996) 96,314,094
------------
MUNICIPAL PREFERRED STOCK - 0.6% SHARES
- -----------------------------------------------------------
HOUSING - 0.6%
MULTI-FAMILY - 0.6%
Charter Mac Equity Issue Trust, AMT,
7.100% 06/30/09 (c) 500,000 553,780
------------
TOTAL MUNICIPAL PREFERRED STOCK
(cost of $500,000) 553,780
------------
SHORT-TERM OBLIGATIONS - 3.3% PAR ($)
- -----------------------------------------------------------
VARIABLE RATE DEMAND NOTES (G) - 3.3%
IA Finance Authority Private College
Revenue, Drake University Project,
Series 2001,
1.140% 0701/31 800,000 800,000
IL Health Facilities Authority
Revenue, Series 2002,
1.100% 11/15/27 200,000 200,000
IN Development Finance Authority
Revenue, Cathedral High School,
Series 2001,
1.140% 09/01/26 900,000 900,000
See notes to investment portfolio.
6
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
SHORT-TERM OBLIGATIONS (CONTINUED) PAR ($) VALUE ($)
- ----------------------------------------------------------
VARIABLE RATE DEMAND NOTES (G) (CONTINUED)
MI Jackson County Pollution Control
Revenue, Chevron USA, Inc.:
Series 1992,
1.080% 12/01/16 100,000 100,000
Series 1993,
1.080% 06/01/23 700,000 700,000
SD Lower Brule Sioux Tribe, Tribal
Purpose, Series 1999,
1.090% 12/01/11 500,000 500,000
------------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $3,200,000) 3,200,000
------------
TOTAL INVESTMENTS - 102.3%
(cost of $93,376,996)(h) 100,067,874
------------
OTHER ASSETS & LIABILITIES, NET - (2.3)% (2,252,491)
- -----------------------------------------------------------
NET ASSETS* - 100.0% 97,815,383
============
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
* Net assets represent both Common Shares and Auction Preferred Shares.
(a) The Fund has been informed that each issuer has placed direct obligations of
the U.S. Government in an irrevocable trust, solely for the payment of
principal and interest.
(b) The security or a portion of the security pledged as collateral for open
futures contracts. At May 31, 2004, the total market value of securities
pledged amounted to $2,865,944.
(c) Security exempt from registration pursuant to Rule 144A under the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 2004,
these securities amounted to $657,312, which represents 0.7% of net assets.
(d) Zero coupon bond.
(e) Security purchased on a delayed delivery basis.
(f) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants. Income is not being accrued. As of May
31, 2004, the value of this security represents 0.2% of net assets.
(g) Variable rate demand notes. These securities are payable upon demand and are
secured by letters of credit or other credit support agreements from banks.
The interest rates change periodically and the interest rates shown reflect
the rates as of May 31, 2004.
(h) Cost for federal income tax purposes is $93,280,566.
At May 31, 2004, the Fund held the following open short futures contracts:
UNREALIZED
AGGREGATE EXPIRATION APPRECIATION
TYPE VALUE FACE VALUE DATE (DEPRECIATION)
- ----------------------------------------------------------------------
10-Year U.S.
Treasury
Note $12,525,750 $12,969,545 Jun-2004 $443,795
U.S. Long Bond 1,473,062 1,472,110 Sep-2004 (952)
--------
$442,843
========
The Fund holds investments that are insured by private insurers who guarantee
the payment of principal and interest in the event of default. A listing of
these insurers at May 31, 2004 is follows:
% of
Insurer Total Investments
- -------------------------------------------------------------
MBIA Insurance Corp. 24.7
Ambac Assurance Corp. 20.9
Financial Guaranty Insurance Corp. 17.2
Financial Security Assurance, Inc. 14.3
Radian Asset Assurance, Inc. 4.1
Federal Housing Administration 1.6
ACA Financial Guaranty Corp. 0.7
FNMA Collateralized 0.3
----
83.8
----
Acronym Name
- --------------------------------------------------------
AMT Alternative Minimum Tax
See notes to financial statements.
7
STATEMENT OF ASSETS & LIABILITIES
May 31, 2004 (Unaudited)
ASSETS:
Investments, at cost $ 93,376,996
------------
Investments, at value $100,067,874
Cash 2,831
Receivable for:
Investments sold 1,095,930
Interest 1,350,676
Futures variation margin 66,940
Expense reimbursement due from
Investment Advisor 6,746
Deferred Trustees' compensation plan 4,115
Other assets 6,056
------------
Total Assets 102,601,168
------------
LIABILITIES:
Payable for:
Investments purchased on a delayed
delivery basis 4,338,050
Distributions - common shares 367,684
Distributions - preferred shares 4,081
Preferred shares remarketing commissions 1,023
Investment advisory fee 28,348
Custody fee 987
Audit fee 25,592
Transfer agent fee 2,770
Reports to shareholders 13,135
Deferred Trustees' fees 4,115
------------
Total Liabilities 4,785,785
------------
Auction Preferred Shares (1,492 shares issued
and outstanding at $25,000 per share) $ 37,300,000
------------
COMPOSITION OF NET ASSETS
APPLICABLE TO COMMON SHARES:
Paid-in capital - common shares $ 60,249,334
Undistributed net investment income 115,221
Accumulated net realized loss (6,982,893)
Net unrealized appreciation on:
Investments 6,690,878
Futures contracts 442,843
------------
Net assets at value applicable to 4,250,677
common shares of beneficial interest
outstanding $ 60,515,383
============
Net asset value per common share $ 14.24
============
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 2004 (Unaudited)
INVESTMENT INCOME:
Interest $ 2,624,547
Dividends 248
------------
Total Investment Income 2,624,795
------------
EXPENSES:
Investment advisory fee 325,746
Transfer agent fee 16,418
Pricing and bookkeeping fees 27,674
Trustees' fees 2,795
Preferred shares remarketing commissions 46,806
Custody fee 4,609
Other expenses 45,668
------------
Total Expenses 469,716
Fees and expenses waived or reimbursed
by Investment Advisor (193,759)
Custody earnings credit (206)
------------
Net Expenses 275,751
------------
Net Investment Income 2,349,044
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 619,018
Futures contracts (369,936)
------------
Net realized gain 249,082
------------
Net change in unrealized appreciation/depreciation on:
Investments (3,308,282)
Futures contracts 424,189
------------
Net change in unrealized
appreciation/depreciation (2,884,093)
------------
Net Loss (2,635,011)
------------
Net Decrease in Net Assets from Operations (285,967)
------------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (160,511)
------------
Net Decrease in Net Assets from Operations
Applicable to Common Shares $ (446,478)
------------
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003
- -----------------------------------------------------------
OPERATIONS:
Net investment income $ 2,349,044 $ 4,852,901
Net realized gain (loss) on
investments written options
and futures contracts 249,082 (2,927,156)
Net change in unrealized
appreciation/depreciation
on investments and
futures contracts (2,884,093) 2,578,776
------------ ------------
Net Increase (Decrease)
from Operations (285,967) 4,504,521
------------ ------------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (160,511) (354,708)
------------ ------------
Net Increase (Decrease) in
Net Assets from
Operations Applicable
to Common Shares (446,478) 4,149,813
------------ ------------
LESS DISTRIBUTIONS DECLARED TO
COMMON SHAREHOLDERS:
From net investment income (2,205,425) (4,448,141)
------------ ------------
SHARE TRANSACTIONS:
Distributions reinvested -
common shares 46,934 167,020
------------ ------------
Total Decrease in Net Assets
Applicable to Common Shares (2,604,969) (131,308)
NET ASSETS APPLICABLE TO
COMMON SHARES:
Beginning of period 63,120,352 63,251,660
------------ ------------
End of period (including
undistributed net investment
income of $115,221 and
$132,113, respectively) $ 60,515,383 $ 63,120,352
============ ============
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
NUMBER OF FUND SHARES: 2004 2003
- -----------------------------------------------------------
Common Shares:
Issued for distributions reinvested 3,197 11,181
Outstanding at:
Beginning of period 4,247,480 4,236,299
------------ ------------
End of period 4,250,677 4,247,480
------------ ------------
Preferred Shares:
Outstanding at end of period 1,492 1,492
------------ ------------
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
May 31, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Colonial Insured Municipal Fund (the "Fund") is a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a non-diversified, closed-end management investment company.
INVESTMENT GOAL
The Fund seeks to provide current income generally exempt from ordinary federal
income tax.
FUND SHARES
The Fund may issue an unlimited number of common shares. On December 20, 1999,
the Fund issued 1,492 Auction Preferred Shares ("APS").
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATION
Debt securities generally are valued by a pricing service approved by the Fund's
Board of Trustees, based upon market transactions for normal, institutional-size
trading units of similar securities. The services may use various pricing
techniques which take into account appropriate factors such as yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other data, as
well as broker quotes. Debt securities for which quotations are readily
available are valued at an over-the-counter or exchange bid quotation. Certain
debt securities, which tend to be more thinly traded and of lesser quality, are
priced based on fundamental analysis of the financial condition of the issuer
and the estimated value of any collateral. Valuations developed through pricing
techniques may vary from the actual amounts realized upon sale of the
securities, and the potential variation may be greater for those securities
valued using fundamental analysis.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FUTURES CONTRACTS
The Fund may invest in municipal and U.S. Treasury futures contracts. The Fund
may invest in these instruments to hedge against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates
and/or market conditions, for duration management, or when the transactions are
economically appropriate to the reduction of risk inherent in the management of
the Fund and not for trading purposes. The use of futures contracts involves
certain risks, which include: (1) imperfect correlation between the price
movement of the instruments and the underlying securities, (2) inability to
close out positions due to differing trading hours, or the temporary absence of
a liquid market, for either the instrument or the underlying securities, or (3)
an inaccurate prediction by Columbia Management Advisors, Inc. of the future
direction of interest rates. Any of these risks may involve amounts exceeding
the variation margin recorded on the Fund's Statement of Assets and Liabilities
at any given time.
Upon entering into a futures contract, the Fund deposits cash or securities with
the broker in an amount sufficient to meet the initial margin requirement.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin payable or receivable
and offset in unrealized gains or losses. The Fund also identifies portfolio
securities as segregated with the custodian in a separate account in an amount
equal to the futures contract. The Fund recognizes a realized gain or loss when
the contract is closed or expires.
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2004 (Unaudited)
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Original issue discount is
accreted to interest income over the life of the security with a corresponding
increase in the cost basis. Premium and discount are amortized and accreted,
respectively, on all debt securities. Dividend income is recorded on the
ex-date.
FEDERAL INCOME TAX STATUS
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable or tax-exempt income, if any, for its tax year,
and as such will not be subject to federal income taxes. In addition, the Fund
intends to distribute in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, such that
the Fund should not be subject to federal excise tax. Therefore, no federal
income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to common shareholders are recorded on ex-date. Distributions to
Auction Preferred shareholders are recorded daily and payable at the end of each
dividend period. Each dividend payment period for the APS is generally seven
days. The applicable dividend rate for the APS on May 31, 2004 was 1.05%. For
the six months ended May 31, 2004, the Fund declared dividends to Auction
Preferred shareholders amounting to $160,511, representing an average APS
dividend rate of 0.86%.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended November 30, 2003
was as follows: Distributions paid from:
Tax-Exempt Income $4,802,018
Ordinary Income* 831
Long-Term Capital Gains --
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
Unrealized appreciation and depreciation at May 31, 2004, based on cost of
investments for federal income tax purposes was:
Unrealized appreciation $7,411,076
Unrealized depreciation (623,768)
----------
Net unrealized appreciation $6,787,308
==========
The following capital loss carryforwards, determined as of November 30, 2003,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
2008 $ 936,392
2010 1,200,810
2011 2,232,409
----------
$4,369,611
----------
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, was acquired by Bank of
America Corporation ("BOA"). The acquisition did not change the way the Fund is
managed, the investment personnel assigned to manage the Fund or the fees paid
by the Fund.
INVESTMENT ADVISORY FEE
Columbia provides administrative and other services to the Fund in addition to
investment advisory services. Columbia receives a monthly investment advisory
fee at the annual rate of 0.65% of the Fund's average weekly net assets,
including assets applicable to the APS. Through November 30, 2004, Columbia has
contractually agreed to waive a portion of its investment advisory fee so that
such fees will not exceed 0.35% annually.
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Corporation ("State Street"). As a result, Columbia pays the total fees received
to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average weekly net assets, including assets applicable to APS, exceed
$50 million, an additional monthly fee. The additional fee rate is calculated by
taking into account the fees payable to State Street under the Outsourcing
Agreement. This rate is applied to the average weekly net assets, including
assets applicable to APS, of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund. For the six months ended
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2004 (Unaudited)
May 31, 2004, the Fund's annualized effective pricing and bookkeeping fee rate
was 0.055%.
FEE WAIVERS
Columbia has voluntarily agreed to reimburse the Fund for certain expenses so
that total expenses (exclusive of investment advisory fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) would not
exceed 0.20% annually of the Fund's average weekly net assets, including assets
applicable to APS. Columbia, at its discretion, may revise or discontinue this
arrangement any time.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. The Fund could have invested a portion of the
assets utilized in connection with the expense offset arrangement in an
income-producing asset if it had not entered into such an agreement.
FEES PAID TO OFFICERS AND TRUSTEES
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the six months ended May 31, 2004, the Fund paid $691 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the six months ended May 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $7,751,051 and
$6,839,610, respectively.
NOTE 6. PREFERRED SHARES
The Fund currently has outstanding 1,492 APS. The APS are redeemable at the
option of the Fund on any dividend payment date at the redemption price of
$25,000 per share, plus an amount equal to any dividends accumulated on a daily
basis unpaid through the redemption date (whether or not such dividends have
been declared).
Under the Act, the Fund is required to maintain asset coverage of at least 200%
with respect to the APS as of the last business day of each month in which any
APS are outstanding. Additionally, the Fund is required to meet more stringent
asset coverage requirements under the terms of the APS Agreement and in
accordance with the guidelines prescribed by the APS' rating agencies. Should
these requirements not be met, or should dividends accrued on the APS not be
paid, the Fund may be restricted in its ability to declare dividends to common
shareholders or may be required to redeem certain APS. At May 31, 2004, there
were no such restrictions on the Fund.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
The Fund holds investments that are insured by private insurers who guarantee
the payment of principal and interest in the event of default or that are
supported by a letter of credit. Each of the Fund's insurers is rated AAA by
Moody's Investors Service, Inc. At May 31, 2004, investments supported by
private insurers that represent greater than 5% of the total investments of the
Fund were as follows:
% OF TOTAL
INSURER INVESTMENT
- --------------------------------------------------------
MBIA Insurance Corp. 24.7%
Ambac Assurance Corp. 20.9
Financial Guaranty Insurance Corp. 17.2
Financial Security Assurance, Inc. 14.3
GEOGRAPHIC CONCENTRATION
The Fund has greater than 5% of its total investments at May 31, 2004 invested
in debt obligations issued by the states of Alabama, California, Illinois, New
York, Tennessee and Texas and their respective political subdivisions, agencies
and public authorities. The Fund is more susceptible to economic and political
factors adversely affecting issuers of the specific state's municipal securities
than are municipal bond funds that are not concentrated to the same extent in
these issuers.
HIGH-YIELD SECURITIES
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. Government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds." Economic
downturns may disrupt the high-yield market and impair the ability of issuers to
repay principal and interest. Also, an increase in interest rates would likely
have an adverse impact on the value of such obligations. Moreover, high-yield
securities may be less liquid to the extent there is no established secondary
market.
12
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2004 (Unaudited)
INDUSTRY FOCUS
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
ISSUER FOCUS
As a non-diversified fund, the Fund may invest a greater percentage of its total
assets in the securities of fewer issuers than a diversified fund. The Fund may,
therefore, have a greater risk of loss from a few issuers than a similar fund
that invests more broadly.
LEGAL PROCEEDINGS
Columbia and Columbia Funds Distributor, Inc. ("CFDI"), and certain of their
affiliates (collectively, "the Columbia Group") have received information
requests and subpoenas from various regulatory and law enforcement authorities
in connection with their investigations of late trading and market timing in
mutual funds, as well as other industry wide issues. The Columbia Group has not
uncovered any instances where Columbia or CFDI were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and CFDI, alleging that they had violated certain
provisions of the federal securities laws in connection with trading activity in
mutual fund shares. Also on February 24, 2004, the New York Attorney General
("NYAG") filed a civil complaint in New York Supreme Court, County of New York
against Columbia and CFDI alleging that Columbia and CFDI had violated certain
New York anti-fraud statutes. If either Columbia or CFDI is unsuccessful in its
defense of these proceedings, it could be barred from serving as an investment
advisor or distributor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could prevent Columbia, CFDI or any company that is an affiliated
person of Columbia and CFDI from serving as an investment advisor or distributor
for any registered investment company, including your fund. Your fund has been
informed by Columbia and CFDI that, if these results occur, they will seek
exemptive relief from the SEC to permit them to continue to serve as your fund's
investment advisor and distributor. There is no assurance that such exemptive
relief will be granted. On March 15, 2004, Columbia and CFDI entered into
agreements in principle with the SEC Division of Enforcement and NYAG in
settlement of the charges. Under the agreements, Columbia and CFDI agreed, among
other things, to the following conditions: payment of $70 million in
disgorgement; payment of $70 million in civil penalties; an order requiring
Columbia and CFDI to cease and desist from violations of the antifraud
provisions and other provisions of the federal securities laws; governance
changes designed to maintain the independence of the mutual fund boards of
trustees and ensure compliance with securities laws and their fiduciary duties;
and retention of an independent consultant to review Columbia's and CFDI's
compliance policies and procedures. The agreement requires the final approval of
the SEC. In a separate agreement with the NYAG, the Columbia Group has agreed to
reduce mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
13
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows
(common shares unless otherwise noted):
(UNAUDITED)
SIX MONTHS PERIOD
ENDED YEAR ENDED NOVEMBER 30, ENDED
MAY 31, ---------------------------------------------------- NOVEMBER 30,
2004 2003 2002 2001 2000 1999 (a)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.86 $ 14.93 $ 15.20 $ 14.68 $ 14.30 $ 14.33
--------- --------- --------- --------- --------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.55(b) 1.14(b) 1.21(b)(c) 1.24(b) 1.24(d) 0.06
Net realized and unrealized gain (loss) on investments,
written options and futures contracts (0.61) (0.08) (0.25)(c) 0.51 0.55 (0.06)
--------- --------- --------- --------- --------- ----------
Total from Investment Operations (0.06) 1.06 0.96 1.75 1.79 --
--------- --------- --------- --------- --------- ----------
LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS:
From net investment income (0.04) (0.08) (0.12) (0.26) (0.35) --
--------- --------- --------- --------- --------- ----------
Total from Investment Operations Applicable
to Common Shareholders (0.10) 0.98 0.84 1.49 1.44 --
--------- --------- --------- --------- --------- ----------
LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS:
From net investment income (0.52) (1.05) (1.11) (0.97) (0.93) --
--------- --------- --------- --------- --------- ----------
LESS SHARE TRANSACTIONS:
Offering costs-- common shares -- -- -- -- --(e) (0.03)
Commission and offering costs-- preferred shares -- -- -- -- (0.13) --
--------- --------- --------- --------- --------- ----------
Total Share Transactions -- -- -- -- (0.13) (0.03)
--------- --------- --------- --------- --------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.24 $ 14.86 $ 14.93 $ 15.20 $ 14.68 $ 14.30
========= ========== ========= ========= ========= ==========
Market price per share-- common shares $ 14.18 $ 15.30 $ 15.09 $ 16.50 $ 12.63 $ 15.00
========= ========== ========= ========= ========= ==========
Total return-- based on market value--
common shares (f)(g) (4.00)%(h) 8.77% (1.72)% 39.25% (9.77)% 0.00%(h)
========= ========== ========= ========= ========= ==========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (i)(j) 0.88%(k)(l) 0.88%(k) 0.87%(k) 0.87%(k) 0.86%(k) 0.55%(l)
Net investment income before preferred
stock dividend (i)(j) 7.47%(l) 7.68% 8.04%(c) 8.11% 8.78% 4.38%(l)
Net investment income after preferred
stock dividend (i)(j) 6.96%(l) 7.12% 7.22%(c) 6.42% 6.34% 4.38%(l)
Voluntary waiver/reimbursement (j) 0.14%(l) 0.18% 0.13% 0.17% 0.48% 0.61%(l)
Portfolio turnover rate 7%(h) 4% 13% 8% 33% 7%(h)
Net assets, end of period (000's)-- common shares $ 60,515 $ 63,120 $ 63,252 $ 64,290 $ 62,051 $ 54,422
(a)The Fund commenced investment operations on October 29, 1999. Per share data
and total return reflect activity from that date.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective December 1, 2001, the Fund adopted the provision of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 8.02% to 8.04% and increase the ratio of
net investment income (adjusted for dividend payments to preferred
shareholders) from 7.20% to 7.22%. The impact to the net investment income
and the net realized and unrealized loss per share was less than $0.01. Per
share data and ratios for periods prior to November 30, 2002 have not been
restated to reflect this change in presentation.
(d)The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e)Rounds to less than $0.01 per share.
(f)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(g)Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h)Not annualized.
(i)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j)Ratios reflect average net assets available to common shares only.
(k)Ratios calculated using average net assets of the Fund equals 0.55%, 0.55%,
0.55%, 0.55% and 0.54% for the six months ended May 31, 2004 and the years
ended November 30, 2003, November 30, 2002, November 30, 2001 and November
30, 2000, respectively.
(l)Annualized.
14
FINANCIAL HIGHLIGHTS (CONTINUED)
ASSET COVERAGE REQUIREMENTS
INVOLUNTARY
ASSET LIQUIDATING AVERAGE
TOTAL AMOUNT COVERAGE PREFERENCE MARKET VALUE
OUTSTANDING PER SHARE PER SHARE PER SHARE
- --------------------------------------------------------------------------------
05/31/04 * $37,300,000 $65,560 $25,003 $25,000
11/30/03 37,300,000 67,306 25,002 25,000
11/30/02 37,300,000 67,396 25,012 25,000
11/30/01 37,300,000 68,090 25,001 25,000
11/30/00 ** 37,300,000 66,589 25,020 25,000
* Unaudited.
** On December 20, 1999, the Fund began offering Auction Preferred Shares.
15
SHAREHOLDER MEETING RESULTS
RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS
On May 26, 2004, the Annual Meeting of Shareholders of the Fund was held to
conduct a vote for or against the approval of the following Items listed on the
Fund's Proxy Statement for said Meeting. On March 10, 2004, the record date for
the Meeting, the Fund had 4,249,263 common shares outstanding. The votes cast
were as follows:
PROPOSAL 1:
ELECTION OF TRUSTEES: FOR WITHHELD
- -------------------------------------------------------------------------------
John J. Neuhauser 4,118,785 40,513
Patrick J. Simpson 4,120,118 39,180
Thomas C. Theobald 4,116,521 42,777
Anne-Lee Verville 4,108,526 50,772
Richard L. Woolworth 4,120,118 39,180
On March 10, 2004, the record date of the Meeting, the Fund had 1,492 preferred
shares outstanding. The votes cast were as follows:
PROPOSAL 2:
ELECTION OF TRUSTEES: FOR WITHHELD
- -------------------------------------------------------------------------------
Douglas A. Hacker 1,240 0
John J. Neuhauser 1,240 0
Patrick J. Simpson 1,240 0
Thomas E. Stitzel 1,240 0
Thomas C. Theobald 1,240 0
Anne-Lee Verville 1,240 0
Richard L. Woolworth 1,240 0
16
DIVIDEND REINVESTMENT PLAN
COLONIAL INSURED MUNICIPAL FUND
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional Common Shares of the Fund
by EquiServe (the "Plan Agent"), as agent under the Plan, unless a Common
Shareholder elects to receive cash. An election to receive cash may be revoked
or reinstated at the option of the Common Shareholder. Shareholders whose shares
are held in the name of a broker or nominee will have distributions reinvested
automatically by the broker or nominee in additional shares under the Plan,
unless the service is not provided by the broker or nominee, or unless the
shareholder elects to receive distributions in cash. If the service is not
available, such distributions will be paid in cash. Shareholders whose shares
are held in the name of a broker or nominee should contact the broker or nominee
for details. All distributions to investors who elect not to participate (or
whose broker or nominee elects not to participate) in the Plan will be paid by
check mailed directly to the record holder by the Plan Agent, as dividend paying
agent.
The Plan Agent will furnish each person who buys shares in the offering with
written information relating to the Plan. Included in such information will be
procedures for electing to receive distributions in cash (or, in the case of
shares held in the name of a broker or nominee who does not participate in the
Plan, procedures for having such shares registered in the name of the
shareholder so that such shareholder may participate in the Plan).
If the Trustees of the Fund declare a dividend (including a capital gain
dividend) payable either in shares or in cash, as holders of shares may have
elected, then nonparticipants in the Plan will receive cash and participants in
the Plan will receive the equivalent in shares valued as set forth below.
Whenever a market price is equal to or exceeds net asset value at the time
shares are valued for the purpose of determining the number of shares equivalent
to the distribution, participants will be issued shares at the net asset value
most recently determined as provided under "Net Asset Value" in the Fund's
prospectus and its Statement of Additional Information, but in no event less
than 95% of the market price. If the net asset value of the shares at such time
exceeds the market price of shares at such time, or if the Fund should declare a
dividend (including a capital gain dividend) payable only in cash, the Plan
Agent will, as agent for the participants, use the cash that the shareholders
would have received as a dividend to buy shares in the open market, the New York
Stock Exchange or elsewhere, for the participants' accounts. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
of the shares, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the shares, resulting in the acquisition of fewer
shares than if the dividend (including a capital gain dividend) had been paid in
shares issued by the Fund. The Plan Agent will apply all cash received as a
dividend (including a capital gain dividend) to purchase shares on the open
market as soon as practicable after the payment date of such dividend, but in no
event later than 30 days after such date, except where necessary to comply with
applicable provisions of the federal securities laws.
There is no charge to participants for reinvesting dividends (including capital
gain dividends). The Plan Agent's fees for handling the reinvestment of
dividends (including capital gain dividends) will be paid by the Fund. There
will be no brokerage charges with respect to shares issued directly by the Fund
as a result of dividends or capital gains distributions payable either in stock
or in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends (including capital gain
dividends).
The automatic reinvestment of dividends (including capital gain dividends) will
not relieve participants of any income tax which may be payable on such
dividends. The amount of the dividend for tax purposes may vary depending on
whether the Fund issues new Common Shares or purchases them on the open market.
The Plan may be amended or terminated on 30 days' written notice to Plan
participants. All correspondence concerning the Plan should be directed to
EquiServe by mail at P.O. Box 43010, Providence, RI 02940-3010, or by phone at
1-800-730-6001.
17
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
TRANSFER AGENT
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Insured Municipal Fund is:
EquiServe
P.O. Box 43010
Providence, RI 02940-3010
The fund mails one shareholder report to each shareholder address. Shareholders
can order additional reports by calling 800-730-6001. In addition,
representatives at that number can provide shareholders information about the
fund.
Financial advisors who want additional information about the fund may speak to a
representative at 800-426-3750.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to its portfolio securities is available (i) without
charge, upon request, by calling 800-730-6001 and (ii) on the Securities and
Exchange Commission's website at http://www.sec.gov.
This report has been prepared for shareholders of Colonial Insured Municipal
Fund.
COLONIAL INSURED MUNICIPAL FUND SEMIANNUAL REPORT
ID-03/055S-0504 (07/04) 04/1527
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable at this time.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's Board of Trustees/Directors since
those procedures were last disclosed in response to Item 7(d)(2)(ii)(G) of
Schedule 14A.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer, based on his evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, has concluded that such controls and procedures are
adequately designed to ensure that information required to be
disclosed by the registrant in Form N-CSR is accumulated and
communicated to the registrant's management, including the principal
executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not
applicable at this time.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable at this time.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial Insured Municipal Fund
------------------------------------------------------------------
By (Signature and Title) /s/ J. Kevin Connaughton
------------------------------------------------------
J. Kevin Connaughton, President and Treasurer
Date August 3, 2004
--------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ J. Kevin Connaughton
------------------------------------------------------
J. Kevin Connaughton, President and Treasurer
Date August 3, 2004
--------------------------------------------------------------------------